A great irony afflicts the British film industry. Cash-starved producers say finding finance is near impossible, yet investors and financial advisers complain they cannot find enough film "product" to put money into.

The issue is risk. British investors - largely wealthy individuals with incomes of £150,000 a year or more - have become addicted to almost zero-risk "sale and leaseback" schemes which exploit tax breaks originally designed to boost the film industry.

The schemes are an ideal tax ruse - the rich can "invest" knowing their capital is completely safe irrespective of whether the film flops.

But the schemes only provide 10-15% of the total film financing for a producer, who still has to put together distribution deals, pre-sales agreements, and find bank "gap finance". So, even if there appears to be money sloshing around, it is doing little to help struggling film makers.

In the tax year ending April 2002, around £1.5bn poured into the schemes. But in last year's Budget the Chancellor closed the door on many of the schemes, which were not really investing in film, but channelling money into pre-sold television series.

Now the market has become a much smaller pool - estimated to be around £600m worth - of sale and leaseback schemes which can be attached to genuine, qualifying British films. Few are still open for investment in this tax year, although the promoters say a raft of new schemes will be launched after April.

What is open for investment are new-style schemes which come much closer to the original concept behind the tax breaks - they provide 30-40% finance for film makers - but which, because they involve a potentially high degree of risk, are meeting resistance among investors.

Unlike the sale and leaseback schemes, the return for investors in "production partnerships" is affected by whether the film is a success or not. The sad truth about British films is that too many are commercial flops. Cinema admissions may be booming - up 68% over the past 10 years - but UK productions made up only 3% of all the movies released in Britain.

The average UK solo production film costs around £3.5m to make according to the Film Council, but takes only £750,000 at the box office - and of that, two-thirds is taken by the distributor and exhibitor.

But Chris Figg, whose company co-produced Trainspotting, points out that the UK box office takings are just the "shop window" for their product. Investors can recoup their cash from sales to foreign territories, to television stations and, most importantly, from video and DVD rentals.

British households now spend three times as much on visits to the likes of Blockbuster than they do on paying to enter a cinema. So what looks like a flop can eventually turn a profit.

Mr Figg is behind a new fund, called Monument, which is bidding to raise £50m from investors (minimum subscription: £50,000) from a complex scheme which is part sale and leaseback and part production partnership.

It claims to have obtained "first look" rights from many of the most established film producers in Britain. Uniquely among film schemes, it is also aiming to give producers much sought-after "development" cash worth up to £100,000 each.

Financial experts have mixed views on the scheme. David Knight of Allenbridge, financial advisers specialising in film finance, says: "Hybrid schemes such as Monument are getting producers on board by offering forward funding. But most people investing in film through tax-related schemes do not want to take much risk. They may do a good job making films but it is very easy to see how investors could lose 60% of their capital."

Martin Churchill, of Tax Efficient Review, another film finance specialist, says: "The main product for investors will remain sale and leasebacks, which are more about defering tax rather than avoiding it. I think the more straightforward production partnership funds can be too risky.

"I think Monument will do well if they sell it properly. But investors may prefer a separate low-risk sale and leaseback plus a separate higher risk production partnership rather than a hybrid."

Pure production partnerships on offer include schemes such as Close Brothers Third Close Film, launched this month. "I like what Close are doing - they are well respected in product and are closer than anyone else to having a good track record."

However, there is an alternative for film pundits, which is to go through an Enterprise Investment Scheme, offering income tax relief and exemption from capital gains and inheritance tax. However, these schemes have proved largely unsuccessful in raising cash for films.

National Lottery and government help The Film Council is the first port of call: www.filmcouncil.org.uk or email: info@filmcouncil.org or call 0207 861 786. The council, set up by the government in 2000 under the chairmanship of Alan Parker, manages and allocates public funds and grants - including Lottery cash - set aside by government for the film industry. The funds come from a Treasury grant but the amounts fluctuate in line with Lottery ticket sales. One hangover of the pre- council period is that some Lottery money is administered by Pathe Pictures, The Film Consortium and DNA Ltd. The funds aim to provide cash towards the development or production of films - they are not set up to fully-back a film. Only one fund may be applied to at any given time. For information on short films contact: shorts@filmcouncil.org.uk

The main funds offering cash are:The Development Fund: £5m per year aimed at getting screenplays into better shape before production. It includes a competition for 12 new writers/producers (open only to individuals with an agent) to qualify for £10,000 in grants annually to write the first draft of a script.

The New Cinema Fund: £5m per year aimed at "cutting edge" filmmaking. Primarily for feature films and projects which exploit new technology, with a particular focus on work from the regions.

The Premier Fund: £10m per year focuses on putting money into the wider process including identifying those which with the potential for international distribution and marketing.

First Light:

£1m of Lottery funds set aside for the younger end of the market (7 to18 year-olds) for first-attempt digital short films. More information on this at www.firstlightmovies.com

The council has a £1m annual training budget for up-and-coming talent and completion funding for makers of short films, in collaboration with FilmFourLab.

Local and regional funds A big part of the council's remit is to encourage regional and ethnically-diverse projects and there are a range of local organisations with funds to dispense. The council invests £6m a year through the Regional Investment Fund for England. Local contacts include: Screen East: 0845 601 5670, London Film Commission: 0207 387 8787, London Film and Video Development Agency: 0207 383 7755, Northern Film Media: 0191 269 9213, North West Vision: 0151 708 8099, Screen South: 01303 298 222, South West Screen: 0117 907 4315, Screen West Midlands: 0121 766 1470, Screen Yorkshire: 0113 294 4410 and Scottish Screen: 0141 302 1700 at www.scottishscreen.com Cineworks, Glasgow Media Access Centre: 0141 553 2620 or at www.cineworks.co.uk Isle of Man Film Commission: 01624 685 864, Northern Ireland Film Commission: 02890 232 444, The Arts Coucil of Wales: 029 2037 6500. Many regional groups have joined forces with regional broadcasters to generate additional finance.

Broadcasters

Channel Four: (www.filmfour.com) Granada Films folded last autumn but some of the Film Four operation merged into the channel's drama department. It has a budget of around £10m a year for development and production targeting lower-budget British films. It will not wholly fund a film but aims to find production and distribution partners. The channel also retained the FilmFour Lab, an off-shoot aimed specifically at finding and developing new, cutting-edge talent. It has its own budget and administers a number of schemes and prizes (see the website) for short films in particular. Unsolicited scripts are discouraged but attending events where you can meet contacts and pitch your idea is welcomed.

BBC Films: (0208 743 8000) The beeb's "mission" is to find new talent and runs schemes working with new producer/directors and writers. It, too, has £10m waiting to be carved up among projects. But, it also has large development team to whom scripts and treatments can be sent. It hopes to make more films for around £500,000.

Other sorts of finance There are hundreds of independent production companies with varying degrees of interest in production, distribution and sales. There are big names such as Working Title, home of Notting Hill and About A Boy (0207 307 3000) and Pathe (0207 323 5151 or www.pathe.co.uk Also, the New Producers Alliance at www.npa.org.uk is a membership-based organisation made up of new producers. They put people in touch with potential executive or co-producers as well as finance contacts. Membership costs £67.90 a year. For ideas about how to get European money check out the European Co-production Association in Paris on 00 33 14421 416 or ask the Film Council.

Should I use my own money?Not if it can be avoided. Some people put their own money into shorts and first features but it should remain in the realm of the uber rich. Private finance can be found - but, when starting out, work with an experienced producer to see how its done.